In an attempt to keep their citizens from drowning in unmanageable debt, many states and even individual cities are taking it upon themselves to create laws and regulations to keep payday loans in check. While Texas does not have strict regulations, Houston has put into place certain laws and restrictions on payday loans. Passed early in 2014 and put into effect July 1, 2014, the city of Houston has new regulations on lending practices. The following discusses some of the new regulations as well as some of the long-standing practices for Houston payday loans.
Total Loan Amount
There is no legal limit to the amount of a payday loan in Texas. However, newly enforced laws in Houston require payday loans to not exceed 20% of a person's monthly income. Many services advertise loans up to $1,000, $2,000 or even $3,000, but these services must obey local laws. In addition to not exceeding the amount allowed by law, lenders may consider your payment and credit histories, if they choose to run a traditional credit report. Ultimately, individual lenders decide the loan amount they are willing to offer you while adhering to the parameters of the law.
Tip: No matter the amount a lender offers you, you do not have to accept the full amount. We suggest only accepting the amount of money you actually need to make it to your next paycheck.
APR & Fees
Interest rates on payday loans are inherently and excessively high, which is why some states are taking it upon themselves to control them. Texas and the city of Houston have yet to pass any regulation on the APRs of payday loans, which is why you will see such a large range. Until regulations control APRs, they will generally range from 300% to 800%, and even over 1,000%. Between 500% and 600% is average, and while exorbitant, it is the nature of the beast.
Tip: Shop around for APRs because some services offer much lower interest rates than others.
For payday loans in Houston, TX, the maximum term of a loan is seven to 35 days. Because payday loans supplement your finances between paychecks, your loan's term will generally fall around 14 days from the time you receive your funds. There are cases where the terms may exceed these standards because the loan may not be a true payday loan but rather a cash advance, which falls under different regulations despite working in a similar fashion. There is not necessarily anything wrong with these other loans, but you want to understand whether your loan is a payday loan, cash advance or installment loan.
Tip: When the term of your loan is up, you are responsible for repaying your loan. Make sure you know when your term ends. Many services automatically debit the amount due when the term is up, so you want to make sure you have the funds in your checking account.
Along with the above-mentioned stipulations, the following are other regulations put into place by the new mandates:
-Payday loan businesses must register with the city annually
-Single payment loans may not be refinanced or rolled over more than three times
-Installment loans are limited to four installments
-Payments on installment loans or rollovers must be at least 25% of the owed amount
For more information on payday lending laws in Houston and the state of Texas, you can look online at government pages or check local media sources for updates. All services that offer payday loans in Houston are bound to obey local laws.